A firm in a purey competitive industry has a typical cost st

A firm in a pure?y competitive industry has a typical cost structure. The normal rate of profit in the economy is 6 percent. This firm is eaning $15 on every $150 invested by its founders 14 28 a. What is its percentage rate of return? Print No percent c. Will this industry see entry or exit?

Solution

Rate of return: Actual return 15 Divide: Actual amount invested 150 Rate of return: 10% (Actual Return/ Actual investment*100) Req b: YES, the firms are earning Economic Profits. Req c: Economic profit: Actual rate of return 10% Less: Normal rate of return 6% Economic profit as % 4% The Industry will see the ENTRY of the firms